Toyota halts fresh investments in India; likely to hold some models also

Another Japanese maker Honda, which had shifted focus on diesel in the last two-to-three years, is also disappointed with the slump in demand for diesel cars and has said it has disrupted the company's sales plans in India.Pankaj Doval | TNN | July 20, 2016, 08:04 IST

NEW DELHI: The burden of idle diesel engine capacity has started telling on the Indian auto industry. Toyota Motor Corporation, the world's top car manufacturer, has said that it is halting fresh investments in India, while undertaking a review, and will possibly hold some of the models that it planned to introduce.

Another Japanese maker Honda, which had shifted focus on diesel in the last two-to-three years, is also disappointed with the slump in demand for diesel cars and has said it has disrupted the company's sales plans in India. Honda says that it is "not able to plan confidently" for the future in view of the fluid situation over diesel variants.

Companies are applying brakes as buyers shy away from diesel variants following measures such as a ban by the Supreme Court on larger diesel engines (above 2,000cc) in the Delhi-NCR region and fast-narrowing gap between petrol and diesel fuel prices. The National Green Tribunal's decision to de-register 10-year old diesel cars has made matters worse, making buyers wary of diesel models.

Toyota has seen some of its blockbuster products such as Innova MPV and Fortuner SUV being banned from the crucial Delhi-NCR region. And, the scenario seems to be getting only worse for the company with each passing day. "There is erosion of confidence in India... We are halting new investments, most definitely," Shekar Viswanathan, vice-chairman and director at the company's India subsidiary Toyota Kirloskar Motor, told TOI.

"We will bring in some products that were planned, but fresh proposals will be on ice for a while... We will rework product plans, at least till 2020. Some of the products that we had planned to introduce will be re-thought," Viswanathan said.

The company's problems can be gauged by the fact that it invested Rs 1,200 crore for a diesel engine plant that started production only recently. It has set up a capacity for around 1 lakh engines annually, but is utilizing around 30% of this. "I do not know what to do with this excess capacity. We cannot live with the betrayal of faith. When I go to the Toyota headquarters in Japan for the next project, it is very hard to explain," Viswanathan said.

He said "wrong inputs" had been fed to the Supreme Court and the NGT over diesel emissions and their impact. He blamed "people who represent NGOs, who think they know everything".

Honda has seen its sales suffer over the past few months and is blaming demand slump for diesel variants. The company had started diesel engine production from its Tapukara plant (in Rajasthan) in 2013, but the output has been under stress now. Against 400 diesel engines that were being produced on a daily basis around that time, the current output per day is around 150 engines, which means 35% capacity utilisation.

"As a consequence, we are not able to plan confidently. We do not know what will happen next," said Jnaneswar Sen, senior VP (sales & marketing) at Honda Cars India. "All these actions are happening suddenly, and in a piece-meal basis. Consumers are also confused."

Fiat India has also seen a contraction in its diesel engine production. "The diesel focus and action could have been handled much better in a collaborative way with the auto industry," said Kevin Flynn, MD of Fiat Chrysler Automobiles India. Fiat has a lucrative business of supplying diesel engines to several car makers.

Sugato Sen, deputy director-general at industry body Society of Indian Automobile Manufacturers (Siam), said diesel car sales have fallen sharply over the past one year or so. "Against a peak of over 50% in 2012-13 when diesel variants were half of the car market, their contribution is now around 25%."

Companies have been throwing in discounts and freebies to clear the diesel inventory at dealerships, but it is still proving to be a challenge to clear the stocks, officials said.